Question

44. Which of the following is an assumption of the law of diminishing returns?

1. All variable inputs, like workers, are of the same quality

2. Capital and labor are both variable inputs

3. Average product is increasing

4. Technology changes in the short-run

45. A firm's marginal cost equals

1. Change in quantity divided by the change in variable cost

2. Slope of its total cost curve

3. Change in quantity divided by the change in total cost

4. Slope of its fixed cost curve

46. Which of the following would be a variable cost for a car manufacturer?

1. The cost of building the factory for production

2. Yearly property taxes for the factory building

3. Interest payment on a lean used to purchase capital

4. The cost of steel used to build cars

Answer 1

Answer 44

Option 1 is correct. All variable inputs like workers are of same quality.

In law of diminishing returns, it is assumed that neither the technology and nor the quality of any variables changes. Both remain same. This indicates that option 4 is incorrect. Assumptions do not say anything regarding average product, therefore, it is not the correct option. Only one factor remains variable whereas all others are fixed. Therefore, only option 1 is correct.

Answer 45

Option 2 is correct. Slope of total cost curve.

Marginal cost is the additional cost of production that arises due to addition variable input. Hence, the slope of the total cost curve is the marginal cost.

If we divide change in quantity by change in variable cost, we will get change in marginal quantity with respect to variable cost which is not a marginal cost. Hence this option is not correct.

Similarly, if we divide change in quantity by change in total cost, we get marginal quantity with respect to total cost which is again not marginal cost. Therefore, it is not a correct option.

There is no marginal cost in fixed cost curve because fixed cost remains same. Therefore, option 4 is also not correct.

Answer 46

Option 4 is correct. Cost of steel used in car manufacturing.

The cost of steel is a variable cost, as prices of steel are not fixed in the short run.

Building factory, yearly property tax on building, interest payment on loan of factory are fixed as they cannot be changed in short run. Therefore, option 1, 2 and 3 are not correct.